Future Returns: Investing in the ‘Food Revolution’

A field of lettuce in Villebernier, near Saumur, western France.
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The food and agriculture industry is shifting rapidly to meet changing consumer preferences and the expanding needs of a global population that’s expected to grow by 2 billion in the next 30 years.

For wealthy individuals, several long-term trends affecting how the world grows and consumes food are presenting attractive investment opportunities largely in private markets, where startups are involved in everything from plant-based alternatives to meat and dairy products to vertical farming.

There are “a lot of interesting longer-term opportunities to invest in the future of food or the food revolution,” says
Andrew Lee,
head of sustainable and impact investing in UBS Global Wealth Management’s chief investment office.

In a report earlier this summer, UBS CIO’s research team said the “food innovation” industry today has a market value of about US$135 billion. By 2030, UBS estimates it will expand by a compound annual growth rate (CAGR) of 15% to US$700 billion.

Investors are intrigued, because this market “touches something that people obviously relate to multiple times a day, which is food,” Lee says.

The success of
Beyond Meat
(ticker: BYND), the maker of plant-based products that went public in May, has proved there can be a commercial angle to alternative foods, but investors also realize the multiple benefits of paying attention to long-term trends.

“They see [food and agriculture innovation] is one of those trends—it’s not shifting tomorrow, but it’s shifting over time, and it has to shift for reasons of resources, climate, and people,” Lee says.

Driving Forces

In a report titled “The Food Revolution,” the wealth manager identifies several trends that will drive innovation in coming decades.

No. 1 is a growth in population, particularly in Africa—which is expected to add 1 billion people by 2050—coupled by increasing urbanization, particularly throughout Asia. All of this will continue to strain existing land and water resources, and will put pressure on countries to work together.

“The need for international cooperation to share information, innovation, and technology is more relevant in food production today than in any other industry,” the report says.

The food industry also is responding to consumers who are more concerned about what they eat—from its cost to the environment to its health benefits, at the same time they want quick access to it at all times. There’s also a push “to bring farming into the future,” through the use of technology. Investment in agricultural-related technology rose to nearly US$17 billion in 2018, up 43% from a year earlier, UBS says.

Agriculture Technology

Consider vertical farming, which employs new technologies in the use of light and water that make it possible for plants to grow even in urban areas.

Vertical farming presents “an interesting way to reduce a lot of water resource usage, and also improve land usage,” Lee says.

According to the report, more types of crops can be grown in these systems. In June 2018, the California firm Crop One Holdings and Dubai-based Emirates Flight Catering partnered to make what is being called the largest vertical farm in the world—a 130,000-square-foot facility that will open in Dubai at the end of this year, UBS said.

“It’s not complete disruption of the existing—let’s call it the farming industry—but it’s how do you either enhance it or how do you replace it entirely in a way that’s more resource efficient, to produce the same or more amounts of nutrition,” Lee says.

Where to Invest

The Crop One-Emirates Flight venture can be considered Farming 4.0, one of five food innovation categories UBS has identified where it expects investors will find opportunities. The other sectors are plant based meat, seed science, and seed treatment, and online food delivery.

The plant-based meat business is expected to see the fastest growth, rising from US$4.6 billion at a 28% CAGR to US$85 billion by 2030 from US$4.6 billion today.

But online food delivery will have the biggest footprint in the food innovation category. Driven by increasing demand from young, urban consumers across the globe, online food delivery will expand from a US$49.4 billion business today to US$365 billion business in 2030, UBS said.

Most investment opportunities in these five sectors will be with private companies that are seeking growth capital from friends and family or venture financing. Although understanding the shifts afoot in food and agriculture also will be helpful in gaining insight into how traditional businesses will have to respond.

As Lee says, “some of the implications of what’s happening here, might not have the most positive effects for traditional companies.” Yet others, whether they are publicly traded or not, are taking steps to respond to the future.

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